Alphabet misses earnings estimates; to reduce headcount additions by half in Q4

Google's parent company posted third-quarter revenue of $69.1 billion, slightly below analysts’ estimates of $70.58 billion.

Alphabet misses earnings estimates; to reduce headcount additions by half in Q4

Wednesday October 26, 2022,

3 min Read

Google parent Alphabet said it would reduce its headcount additions by half in the fourth quarter as it announced its financial results for the quarter that ended September 30, 2022, missing earnings expectations.

The firm has started its work to drive efficiency by realigning resources to invest in its biggest growth opportunities, Alphabet and Google CEO Sundar Pichai said during the company’s earnings call. “Our Q4 headcount additions will be significantly lower than Q3. And as we plan for 2023, we’ll continue to make important trade-offs where needed and are focused on moderating operating expense growth.”

The tech giant added 12,765 people in the third quarter, including more than 2,600 joining Google Cloud as part of its acquisition of Mandiant, according to Alphabet and Google CFO Ruth Porat. It has 1,86,779 employees globally.

“In the fourth quarter, we expect headcount additions will slow to less than half the number added in Q3. Within this slower headcount growth, next year, we will continue hiring for critical roles, particularly focused on top engineering and technical talent,” Porat noted.

Alphabet posted third-quarter revenue of $69.1 billion, slightly below analysts’ estimates of $70.58 billion, according to Refinitiv data. The revenue growth slowed to 6% from 41% in the corresponding period of the last fiscal year.

The company’s net income dropped to $13.9 billion (or $1.06 per share) from $18.9 billion ($1.40 per share) in the year-ago period, missing analysts’ expectations of $1.25 per share, according to Refinitiv estimates.

For the third quarter, Alphabet’s operating expenses were $20.8 billion, up 26%, reflecting the increases in research and development (R&D) and general and administrative (G&A) expenses, which were driven primarily by headcount growth; and the growth in sales and marketing expenses, which was driven primarily by increased spending on ads and promotions, followed by headcount growth, Porat noted.

Google’s advertising revenue, including Google Search, YouTube ads, and Google Network, was $54.5 billion in the third quarter, compared with $53.1 billion in the year-ago period, indicating a slowdown in digital ad spending in the current economic climate.

Google Search revenue rose 4% to $39.5 billion, from $37.9 billion in the prior-year quarter. On the other hand, YouTube’s ad sales decreased by 2% to $7.1 billion from $7.2 billion year-over-year. During the third quarter, Google Cloud revenue surged to $6.9 billion from $4.9 billion the year prior.

“We are sharpening our focus on a clear set of product and business priorities. The product announcements we have made in just the past month alone have shown that very clearly, including significant improvements to Search powered by AI, new ways to monetise YouTube Shorts, which will support the creator ecosystem, the strong series of hardware launches and a new partnership and product announcements at Cloud Next. These will all drive value for users, partners and our business,” Pichai said.

“We are focused on both investing responsibly for the long term and being responsive to the economic environment.”